The mystery of car insurance pricing

Your age and the car you drive aren't the only things that influence how much you'll pay for your insurance. But there's often little logic to what will get you the best price.

Insurance companies have long been criticised for their treatment of loyal customers, reserving some of their worst deals for those who dutifully renew every year.

Older people, those without the means or the skills to search for better deals, those too busy or harassed to do anything other than go for quick and easy renewal, and of course those who fondly believe that loyalty is rewarded, are all in line for getting a bad deal.

In the dark at renewal time

Companies capitalised on this inertia by omitting any details of the previous year’s premium from their renewal quotations, meaning that many consumers were simply unaware of price hikes.

Trying to get this information out of an insurance company was nigh on impossible. Try phoning up and you may well have been told that the information “was not on the system”. At least the FCA cottoned on to this and has now compelled companies to tell consumers what they paid last year when they send out their renewal documents.

But if you thought that being vigilant about stealth increases for those who don’t shop around was the main problem, then think again.

I recently went through the process of buying a second hand car with my son. Having just passed his driving test and needing a car to travel to his new job, we answered ads, went to dealers and, finally, narrowed it down to the last 2 or 3.

He had already established that, at the age of 22, and with 3 weeks driving experience, the best insurance deal on a car worth £2,000 was £800. This was helped by putting a “mature” second driver on the policy with a clean record and in excess of 25 years driving experience.

Why is there a massive loading for taking out insurance on the day?

So on a Tuesday we went in my car to a dealer half an hour away, did the test drive and agreed to buy the car he had seen online the previous week.

As he’d already got the insurance lined up for that specific car we were merrily filling in the transfer documents, when I suggested he should get the insurance live before actually signing on the dotted line. It was then that he discovered that the quote he had got a week earlier was for Friday – 3 days in the future.

Bringing it forward to Tuesday mysteriously increased the premium to £1,000. But if we came back on Friday the insurance would be at the earlier quoted price of £800. Uncannily, the three other companies who had quoted him £800 for Friday also wanted £1,000 for a same day start.

Neither I - or even the dealer - had come across anything like this before – and I can't think of any justification based on risk or any other actuarial assessment for what companies are doing. Adding a 25% loading of this kind is simply profiteering from people’s lack of options if they don’t want to or are not in a position to wait to take out insurance.

That this cynical practice is widespread was confirmed when my son later did an analysis of car insurance quotes. He found that they were all highest for start dates within one or two days, then gradually reduced, stabilising at a lower level once the quote was seven or more days in the future.

We elected to stand up for our principles, left the bemused dealer with a deposit, and returned to buy the car that Friday. Not everybody can do that, and quite likely the people who are least in a position to arrange everything seven days in advance are those who can least afford this sort of exploitation.

I reduced my default excess by two-thirds at no cost – just because I asked

Even more bizarre was my experience with my own car insurance renewal a few days later. I had decided to see if switching the policy to the company I have my house insurance with would be beneficial. The quote I was given over the phone was pretty competitive, but included a rather high policy excess of £350.

I asked how much more I would have to pay to reduce it to £250, bringing it in line with my current policy. The very pleasant man on the other end of the line said he would get me a quote for an excess of £100, but I insisted on £250, hoping to avoid too big an increase in the premium.

Strangely, there was no price increase to reduce to an excess of £250. I decided to push the boat out and get a quote for £200. No increase. Then the penny dropped and I asked for the price on a policy with £100 excess. Exactly the same price as for a policy with an excess of £350, which no doubt the pleasant man knew at the start of the conversation but hadn’t been able to say.

So I got a great deal on my car renewal. But if I hadn’t asked and had then needed to make a claim, my payout would have been £250 less than I will now get as a result of my forensic questioning. Something inside my head tells me that this is not treating customers fairly.

Thank goodness I won’t have to have anything to do with anyone’s car insurance for another year!

Hilary Cooper is an independent consultant and senior associate at Fairer Finance. She can be contacted at hil.cooper@gmail.com